After becoming a financial mess and being taken over by the government, General Motors Company (NYSE:GM) underwent a bankruptcy process that wiped out shareholders and forced massive haircuts on bondholders. The restructuring has enabled GM to become profitable again, however, and the government has been steadily selling its stake. Last year, American International Group Inc (NYSE:AIG) was in a similar situation as Uncle Sam wound down its ownership of the insurance group. Can any comparison be made between General Motors Company (NYSE:GM) and AIG? Let’s take a look.
Healthier rivals
Both General Motors Company (NYSE:GM) and American International Group Inc (NYSE:AIG) were in a situation where they needed government support, but their respective industries also had members that did not require such assistance.
In insurance, Prudential and MetLife avoided AIG’s situation and even bought assets that American International Group Inc (NYSE:AIG) was selling. While General Motors Company (NYSE:GM) and Chrysler both needed government help, Ford Motor Company (NYSE:F) did not need help by anywhere near the same extent. Ford Motor Company (NYSE:F) did receive $5.9 billion in Department of Energy loans from the same program that helped Tesla Motors, and these funds did help the automaker through tough times. Government involvement in Ford Motor Company (NYSE:F) was less hands-on, though, and has allowed Ford to build the image of being the American automaker that didn’t take bailout funds.
Majority stake and share sale
As part of the bailouts, the government took majority stakes in both General Motors Company (NYSE:GM) and American International Group Inc (NYSE:AIG). This allowed the government to exercise control over the restructuring processes for the companies. The government did not want to be in the insurance or automotive businesses, however, and took the opportunity to reduce its ownership once each company was on stable ground again. In American International Group Inc (NYSE:AIG)’s case, the government was able to make over $20 billion in profit. Unfortunately, the final numbers from the General Motors Company (NYSE:GM) sale are expected to make the GM bailout a net loss for Uncle Sam.
Share price action
During the government’s sale of American International Group Inc (NYSE:AIG), publicly traded shares remained stuck in the high-$20 and low-$30 ranges. The fact that the price remained steady while millions of new shares were entering the market meant that there had to be significant buying pressure as well. The buying pressure was seen in fuller force after the government share sale was completed and shares moved into the mid-$40 range.
